PPA (Power Purchase Agreement)
A long-term contract under which a buyer agrees to purchase electricity from a specific generator at a set price or price formula.
A power purchase agreement (PPA) fixes the price and volume terms between an electricity generator and an offtaker, usually for 10 to 20 years. The predictable revenue lets developers secure project finance at lower cost, while buyers hedge against wholesale price volatility and obtain guarantees of origin or RECs for renewable claims.
Main structures:
- Physical (sleeved) PPA: power is delivered through the grid via a utility to the buyer's meter.
- Virtual or financial PPA (VPPA): a financial swap; the generator sells on the spot market and the parties settle the difference against the strike price, similar to a CfD.
- Volume shapes: pay-as-produced, baseload, or shaped profiles, with different allocation of profile and balancing risk.
Corporate PPA volumes reached record levels in the 2020s, with BloombergNEF tracking over 40 GW contracted globally in some years, led by technology companies such as Amazon, Microsoft, Google and Meta. LevelTen indices put European solar PPA prices around 50 to 65 EUR/MWh and North American solar around 55 to 60 USD/MWh in 2024 to 2025. Key risks include buyer credit, cannibalisation of capture prices, negative-price hours and basis risk between node and hub.
Related terms
All terms →- Contract for Difference (CfD)
A support scheme or contract in which a generator receives the difference between a fixed strike price and a market reference price, paying back when prices exceed it.
- LCOE (Levelized Cost of Electricity)
The constant price per MWh that recovers all lifetime costs of a power plant, discounted to present value, divided by its discounted lifetime output.
- Guarantee of origin / REC
A tradable certificate proving that 1 MWh of electricity was generated from a specific source, used to substantiate renewable or low-carbon claims.
- Feed-in tariff
A policy that guarantees renewable generators a fixed price per kWh exported, usually for 15 to 20 years, independent of market prices.
- WACC
Weighted average cost of capital: the blended return required by debt and equity investors, used as the discount rate for energy projects.
- Negative electricity prices
Wholesale prices below zero, when generators pay to deliver power because inflexible supply exceeds demand.